Uncovering the Truth: Inspection and Testing Provision and the Inspection Contingency
Cori Lamont | August 09, 2016
In 2011, we started a series of articles exposing the truths of real estate practice and dispelling any perpetuated myths. Over the course of the last several years, these articles have discussed protected buyers, as-is transactions, buyer agency, procuring cause, use of non-approved forms, and three articles specifically on the inspection contingency and the inspection report when the deal falls apart. And even though we have written at length about the inspection contingency and the inspection report, there is one area left to focus on during our dispelling of rumors: the Inspection and Testing provision.
The Inspection and Testing provision of the WB-11 Residential Offer to Purchase (WB-11) on lines 395-409 is located in the offer immediately before the inspection contingency. This section on lines 395-409 essentially lays the foundation of the inspection contingency.
There is no doubt that the inspection contingency is a contender for the title of “the contingency with the most asked questions” on the WRA Legal Hotline. Seriously, the inspection contingency is always the top one or two on the hotline report that details the most-asked questions. However, it’s the Inspection and Testing section of the offer that sets the entire inspection contingency conversation. Therefore, this urban legend article about inspection contingencies begins on line 395 of the WB-11.
Myth #1 **
There is no definition of “test” in the offer to purchase.
The truth: Lines 398-399 of the WB-11 state, “A ‘test’ is defined as the taking of samples of materials such as soils, water, air or building materials from the Property and the laboratory or other analysis of these materials.”
The inspection contingency specifically states that it only authorizes inspections — not testing — per line 410 of the WB-11. In order for the buyer to be permitted to test, the contract must include a testing contingency. For clarification as to the difference between an inspection and a test, look to the Inspection and Testing provision on lines 395-402 of the WB-11. The blank lines of the inspection contingency are not for the buyer to insert testing items, including “all tests deemed necessary and appropriate as recommended by the home inspector.” The inspection contingency would allow follow-up inspections noted in the inspector’s report, but the authority does not extend to testing.
The note on lines 403-405 of the WB-11 cautions, “Any contingency authorizing testing should specify the areas of the Property to be tested, the purpose of the test, (e.g., to determine if environmental contamination is present), any limitations on Buyer’s testing and any other material terms of the contingency.” A testing contingency should specify who will conduct the test, when and where it will be conducted, what standards will trigger the buyer’s ability to request remediation or terminate the offer, and whether the seller will have the right to cure.
**Myth #2 **
There is no definition of “inspection” in the offer to purchase.
The truth: Lines 396-398 state, “An ‘inspection’ is defined as an observation of the Property which does not include an appraisal or testing of the Property, other than testing for leaking carbon monoxide, or testing for leaking LP gas or natural gas used as a fuel source, which are hereby authorized.”
The home inspection contingency contained in the WB-11 is designed for inspections only, not testing. The first sentence of the contingency states, “This contingency only authorizes inspections, not testing (see lines 395-409).” In addition, lines 401-402 of the offer state, “Except as otherwise provided, Seller’s authorization for inspections does not authorize Buyer to conduct testing on the Property.” Lines 395-396 indicate, “Buyer may only conduct inspections or tests if specific contingencies are included as a part of this Offer.”
The home inspection contingency provides for three forms of inspections:
An inspection conducted by a Wisconsin-registered home inspector.
Any enumerated component inspection.
Follow-up inspection(s) recommended in a written report from one of the previously authorized inspectors.
Note that the ability to conduct follow-up inspections — but not testing — is limited to those inspections recommended in writing by an authorized inspector. The blanks at lines 413 and 414 should be used only to list the specific components of the property that will have specific inspections and should not, without other modifications to the contract, refer to testing.
**Myth #3 **
The seller does not have to give anyone access to the property.
The truth: Lines 399-401 provide, “Seller agrees to allow Buyer’s inspectors, testers and appraisers reasonable access to the Property upon advance notice, if necessary to satisfy the contingencies in this Offer. Buyer and licensees may be present at all inspections and testing.”
Therefore, if the seller attempted to prevent a person who is authorized per the terms of the offer — such as an inspector, tester or appraiser — access to the property, the buyer may be able to successfully argue the seller is not acting in good faith. In the offer, the seller agrees to allow any of the buyer’s inspectors, testers and appraisers access to the property to satisfy the contingencies agreed to in the offer to purchase.
**Myth #4 **
The buyer is never required to give the seller copies of inspection and testing reports.
The truth: Line 407 states, “Buyer agrees to promptly provide copies of all inspection and testing reports to Seller.”
Note that per the WB-11, the buyer agrees to promptly provide copies of all inspection and testing reports to the seller. This obligation to provide copies of the reports is separate and independent of giving a notice of defects or attempting to negotiate an amendment for repairs.
Thus, if there was an agreed inspection or test between the buyer and the seller, then the buyer must provide copies of the reports generated by the inspection and test regardless of the results. If the buyer later decides to provide an amendment or notice regarding the information contained in the inspection or testing report, then the buyer would be wise to send the report over again.
**Myth #5 **
The agent must attend the home inspection.
The truth: The Department of Safety and Professional Services has not taken a position on this issue, other than that the Administrative Code rules do require real estate licensees to make a reasonable inspection of the property during the course of a transaction. See Wis. Admin. Code § REEB 24.07(1).
Although the buyer engages individuals to conduct the home inspection or testing authorized in the offer, the seller may choose to attend or have an agent attend the inspection or testing as well. A listing firm establishes the relationship with the seller in the listing agreement. The seller and listing agent may agree that the listing agent will attend inspections, testing or showings. The terms and conditions of the listing will be negotiated by the seller and may take into consideration company policies concerning whether home inspectors and other professionals on-site should or should not be accompanied by a licensee.
As far as agents who do accompany home inspectors, there are dangers of potential liability coming from different directions. If the agent starts assisting or supervising the home inspector, the agent could face possible liability for negligence for a defect that is missed, as was the case in the 2002 REALTOR® Magazine article “Pass the Baton: Do Your Job and Let Inspectors Do Theirs.”
An agent accompanying an inspector could also face problems if the home inspector oversteps his or her authorization and, for example, engages in sampling for radon or mold tests. The agent has a responsibility to stop any unauthorized procedures. On the other hand, if the agent is not present during an inspection, nobody is on-site to monitor the inspector — the fact that they must be registered does not eliminate the possibility that an inspector might someday overstep authority. One way to control the scope of the inspector’s activity is to have the buyer who hires the inspector enter into a contract that specifically sets the parameters of the inspection.
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.